b) Debt Management Ratios: Debt management ratios help us to analyze a company's use of its financial leverage. The following debt management ratios have been examined to measure AT&T Inc.'s financial risks and the probability of default.
b.1) Financial Leverage Ratio: Financial leverage ratio is also an important financial tool to evaluate the financial health of a business; it helps to measure the extent to which a company is using the long-term debt. In general, high leverage is an indication to be at a risk of bankruptcy (Financial Leverage, 2011). An analysis of AT&T Inc.'s financial leverage indicates that it has been increased in the last five years from 2.40 in 2010 to 3.39 in 2014. The financial leverage of 3.39 indicates that for
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The debt to equity ratio has risen in every single year just like financial leverage ratio. It went up from 0.53 (2010) to 0.88 (2014). The current debt to equity ratio (0.88) indicates that most of the assets are financed by borrowed money. According to AT&T, the company took the advantage of lower market interest rates in the year 2014, and issued $16,013 long terms debts in numerous markets. The average weighted maturity of those debts is approximately 13 years with an average coupon of 2.4 percent (SEC Filings, 2015). The issuance of long-term debts and an increase in debt to equity ratio shows that AT&T has started to rely more on debt financing than equity …show more content…
It indicates how many times an average inventory is sold in a specific period. An examination of AT&T.'s inventory turnover ratio reveals that there was a continuous increase in the first four years (from 2010 to 2013); however, this ratio slightly went down (from 10.07 to 9.65) in fifth year. The current inventory turnover ratio of 9.65 indicates that AT&T has effectively sold its inventory 9.65 times in the year 2014. The inventory turnover trend in the last five years indicates AT&T Inc. has strong sales performance. The efficiency is turning over inventory is useful to improve liquidity; it will enable AT&T to meet its debt
These ratios can be used to determine the most desirable company to grant a loan to between Wendy’s and Bob Evans. Wendy’s has a debt to assets ratio of 34.93% while Bob Evans is 43.68%. When it comes to debt to asset ratios, the company with the lower percentage has the lowest risk. Therefore, Wendy’s is more desirable than Bob Evans. In the area of debt to equity ratios, Wendy’s comes in at 84.31% while Bob Evans comes in at 118.71%. Like debt to assets, a low debt to equity ratio indicates less risk in a company. Again, Wendy’s is the less risky company. Finally, Wendy’s has a times interest earned ratio of 4.86 while Bob Evans owns a 3.78. Unlike the previous two ratios, times interest earned ratio is measured on a scale of 1 to 5. The closer the ratio is to 5, the less risky a company is. From the view of a banker, any ratio over 2.5 is an acceptable risk. Both companies are an acceptable risk, however, Wendy’s is once again more desirable. Based on these findings, Wendy’s is the better choice for banks to loan money to because of the lower level of
Another observation is that GM looks to use more debt financing that equity financing for funding their activities. The debt to equity ratio has steadily decreased over the past five years and is higher that the industry average. Also, the current and quick ratios are much lower than the industry averages. This again can pose so...
When comparing the debt-to-assets ratio of McDonalds and Wendys, you have to divide the firms total liabilities by their total assets. Essentially, the debt-to-assets ratio is the primary indicator of the firms debt management. As the ratio increases or decreases, it indicates the firms changing reliance on borrowed resources. The lower the ratio the more efficient the firm will be able to liquidate its assets if operations were discontinued, and debts needed to be collected. In 2005 Wendy's had $2,076,043 worth in total assets and $846,264 in total liabilities. When divided, Wendys has the lower ratio of the two competitors at 40%. This means that they would take losses of 40% if operations were shut down, and the cash received from valuable assets would still be sufficient to pay off the entire debt. It also means that 40% of Wendys assets are made through debt. McDonalds in 2005 had $12,545.3 (in millions) of total liabilities and $22,534.5 (in millions) of total assets. After doing the math, McDonalds ends up with a ratio of 56% which is higher than Wendys by sixteen percent. This means that there is more default on McDonalds liabilities, which can be a costly event from lenders perspective. McDonalds makes 56% of all its assets through debt. In reality, its not good to have a debt-to-assets ratio over 50%. Its also not good to have a debt-to-assets ratio that is too low because...
Ratio analysis are useful tools when judging the performance of a company by weighing and evaluating the operating performance (Block-Hirt). There are 13 significant ratios that can separate by four main categories, profitability, asset utilization, liquidity and debt utilization ratios. The ratio analysis covered here consists of eight various ratios with at least one from each of these main categories. These ratios were used to compare and contrast the performance of Verizon versus AT& T over the years 2005 and 2006.
In 1993 the Debt to Equity Ratio was .45. In 1994 it was .68 and in 1995 it was .73. This is a trend that Clarkson will have to take into consideration as he refinances his company.
.... In addition, inventory turnover shows a consistent increase from 2.16 in 2011 to 2.38 and 2.49 for 2012 and 2013 respectively.
AT&T’s roots stretches all the way back to 1875, when Alexander Graham Bell created the first telephone. The main reason AT&T was created was to exploit the creation of the telephone. AT&T became a parent company to the Bell system, which was a phone company monopoly. They created a long distance telephone network that went from New York to Chicago and then on to San Francisco. Then in 1984 AT&T split into eight different phone companies. They built out to Denver in 1899 and then they hit a rough patch, the signal wasn’t too strong. Luckily, AT&T created the first practical electrical amplifier in 1913. And this made transcontinental communication possible. Bell’s patent expired in 1894 and only Bell telephone could only legally operate in the U.S. The number of telephones grew as phone wires spread across the nation, there where about 3,317,000 phones. The only downside to this early story is that, only phones with the same phone company could contact each other, this was being fixed in 1913. In 1925 there was a new president, Walter Gifford, he sold International Western Electrical Company to the ITT for 33 million to make AT&T universal. In January 1, 1984 was changed and revitalized, it no longer was the bell system. It had a new global icon, as you see today. IN 1984 AT&T carried around 37.5 million calls a day. CEO, Robert Allen, announced that on Septemb...
The consistent high spending of capital equipment is the first reason why one would recommend reducing the debt to equity ratio. A company with higher levels of debt is less flexible in being able to adjust to new market demands and conditions that require the company to make new products or respond to competition. Looking at the pecking order of financing, issuing new shares to fund capital investing is the last resort and a company that has high levels of debt, must move to the equity side to avoid the risk of bankruptcy. Defaulting on loans occur when increased costs or bad economic conditions lead the firm to have lower net income than the payments on loans. The risk of defaulting on loans and the direct and indirect cost related to defaulting lead firms to prefer lower levels of debt. The financial distress caused by additional leverage can lead to lower cash flows available to all investors, lower than if the firm was financed by equity only. Additionally, the high debt ratio that Du Pont incurred also led to them dropping from a AAA bond rating to a AA bond Rating. Although the likelihood of not being able to acquire loans would be minimal, there are increased interest costs with having a lower bond rating. The lower bond rating signals to investors that the firm is more likely to default than if it had a higher (AAA) bond rating.
When analyzing Apple’s Accounts Receivable Turnover Ratio, the ratio is lower than the average industry. The ratio shows 11.96 times in account receivable collections during the year and how efficiently Apple uses its assets (Miller-Nobles, Mattison and Matsumura 781-782). Account receivable collections will increase after the release of the iPhone 6 and iPhone 6Plus by mid-September. Therefore, increasing the ratios of account receivable turnover and inventory turnover.
The telecommunications industry is of vital importance to the development of the information-based economy. AT&T need to supply access to cost efficient, timely and innovative telecommunications services.
only make up 16.7% of the capital structure. Thus, the credit risk for any credit commitment was not too high
Their effectiveness in collecting debt is poor; therefore, they are losing money from their credit sales. The inventory turnover ratio for Kodak is also low. It has decreased from 2012 to 2014, sitting at 4.66. When this number is compared to HP and Sony (13.23 and 8.10 respectively), it shows that Kodak has poor sales and excess inventory. Kodak is also not getting much revenue per dollar from assets.
Any successful business owner or investor is constantly evaluating the performance of the companies they are involved with, comparing historical figures with its industry competitors, and even with successful businesses from other industries. To complete a thorough examination of any company's effectiveness, however, more needs to be looked at than the easily attainable numbers like sales, profits, and total assets. Luckily, there are many well-tested ratios out there that make the task a bit less daunting. Financial ratio analysis helps identify and quantify a company's strengths and weaknesses, evaluate its financial position, and shows potential risks. As with any other form of analysis, financial ratios aren't definitive and their results shouldn't be viewed as the only possibilities. However, when used in conjuncture with various other business evaluation processes, financial ratios are invaluable. By examining Ford Motor Company's financial ratios, along with a few other company factors, this report will give a clear picture of how the company is doing now and should do in the future.
The inventory turnover decreased from 3.8 to 3.59. This is explained by the higher increase in the average inventory (37%) than the increase in cost of sales (29%) during 2005. This means that the rate at which inventory is sold is dropping
... inventory turnover was found to be very low. The low inventory turnover ratio was an indicator of inadequacy, since inventory usually has a rate of return of zero (Inventory Turnover Ratio Interpretation, 2009). It also implied either poor sales or excess inventory. A low turnover rate indicated poor liquidity, convincible overstocking, and obsolescence, but it would have also reflected a planned inventory build-up in the case of material shortages or in anticipation of rapidly rising prices. (Inventory Turnover Ratio Interpretation, 2009) And a rapid and unexplained rise in the number of sales per day in receivables in addition to growing inventories to cover the shortage was noted. The interviewee (Public Accountant) could smell something suspicious which led him for more detailed procedures and proactive investigation at the end of which a fraud was detected.